Foreign Qualification & Certificate of Authority

Foreign Qualification is the process of registering your corporation or LLC to do lawful business in another state, in addition to the state in which it was incorporated. The specific filing has different names depending on the state, but is typically known as a Certificate of Authority or Certificate of Registration.

What Is a Certificate of Authority Used for?

The Certificate of Authority is a foreign qualification requirement for corporations and LLCs that want to expand.

Across the country, businesses choose Delaware as the home state of their company in order to take advantage of its strong corporate law structure. However, not all of these businesses plan to stay exclusive to Delaware. Essentially, the foreign qualification process allows a Delaware company to be governed under the Delaware Corporate Law structure but still operate locally and do business in another state.

The Foreign Qualification Process

As mentioned, a foreign qualification first requires a Certificate of Authority. Applying for a Certificate of Authority can be completed through Harvard Business Services, Inc.. This process can take several weeks, so plan accordingly.

Not all business activities necessitate a foreign qualification, so be sure to consult a professional before executing this process.

Reasons to Foreign Qualify

You will need to get authority for your corporation or LLC to do business in a state (besides the one in which it is registered) before beginning your operations there. However, there is no widely accepted definition of "doing business." Instead, each state defines what constitutes business activity. This could be one of several specific actions or a combination of several different factors.

Some examples of situations that may require a foreign qualification are:

• Having a physical business address in the state
• Accepting customers' orders from the state
• Paying employees in the state
• Holding company assets in the state

In many states, renting an office space, for example, gives a business a clear presence in a state, sometimes referred to as establishing "nexus." In such a state, one of the actions listed above would mean that foreign qualification is necessary. Similarly, a combination of factors such as running a TV ad, contracting with a customer in the state, or having a single employee living in the state may be deemed "business activity." Typically, a combination of these elements may call for a Certification of Authority, even if one of those factors alone would not.

When to Obtain the Certificate of Authority

For companies that are incorporated in Delaware while their business takes place outside of the state, the process of foreign qualification should be handled immediately after the company formation. This will allow the new business to obtain its certification and operate in its own state right away. There is no specific requirement for when the filing needs to be completed, but be conscious of where you plan to hire employees and provide services.

How Long Does a Certificate of Authority Remain Active?

Typically, once the foreign qualification process is complete, you will be qualified to do business in that state indefinitely, as long as your business maintains compliance with the state. In that sense, a Certificate of Authority's role is complete after being submitted to the state. Generally, a Certificate of Authority will need to be renewed, usually on a quarterly or annual basis, depending on the state. The renewal process varies state to state, and typically involves submitting updated company information, like changes to your business address, registered agent, or ownership structure.

Certificate of Authority Requirements

Each state's requirements for granting authority to do business will vary. However, there are some items that are very commonly needed:

• Certificate of Good Standing (also known as Certificate of Existence)
• Certified Copy of your Certificate of Incorporation or Certificate of Formation (also known as Articles of Incorporation or Articles of Organization)
• A Registered Agent

Yes, you are also required to retain a Registered Agent in any state in which you foreign qualify. Even if your business is registered in Delaware and you maintain a Delaware registered agent, you will need a California Registered Agent in order to do business in California. (Note: Harvard Business Services can provide registered agent service in any state, for a nominal annual fee.)

Certificate of Authority Cost

Each state has different requirements for completing the foreign qualification process. Certificate of Authority prices also vary by entity type. In most cases, there will be an application with an accompanying fee. This fee can vary widely, as can the fee for upkeep, which may be due annually, biannually, quarterly, or not assessed at all.

Harvard Business Services has a team of specialists that is very familiar with the nuances of filing for a Certificate of Authority in each state. When working with us, our team is happy to recommend specific solutions that will get your application received, processed, and approved more quickly and accurately than other ways. We are happy to provide further details on this when you speak to us.

Keep in mind that our team charges our own service fee for completing your LLC or corporation's Certificate of Authority order. We will provide you with a clear, custom quote for your needs.

Foreign Qualification Requirements by State

Foreign qualification requirements generally vary by state. Each jurisdiction sets its own rules for when a business is considered to be "doing business" and what is required to register. Some states define activity broadly, such as having employees, a physical office, or in-state sales, while others provide clearer safe harbors for activities like online sales or independent contractors.

Most states require a Certificate of Authority (or similar filing), a registered agent with a physical in-state address, and a certificate of good standing from the company's home state. However, filing fees, processing times, naming rules, and ongoing obligations such as annual reports or franchise taxes can vary significantly.

Ongoing Compliance

Once you've obtained a Certificate of Authority to do business as a foreign entity in another state, you'll need to uphold your good standing in that state. This includes filing the state's version of an annual report and paying any other necessary fees. You must also maintain a registered agent for each of those states at all times. Harvard Business Services provides registered agent services in all 50 states, if you'd like to save yourself some hassle.

Failure to Comply with State Regulations

Generally, if you do not adhere to local compliance regulations for foreign qualification, you will be putting your company at risk.

• You may be forced to pay fines and may not be able to protect your company's assets.
• You will likely be liable for all the back taxes your company has not paid.
• You may not be allowed in that state's court system until you complete the Foreign Qualification process.

Please remember that if your corporation or LLC has a Certificate of Authority in another state, you must obtain a business license and pay taxes so your entity is both legal and compliant. Keep in mind you will be responsible for filing annual reports as well as taxes in the state in which you have filed for Foreign Qualification, in addition to your company's domestic state.

Typically, if a Delaware company is not physically doing business in the state of Delaware, its only obligations to the state are the annual report, franchise tax payment, and maintenance of a Delaware Registered Agent.

Foreign Qualification FAQs

Is a Certificate of Authority a Business License?

No. Even though a Certificate of Authority has a few similarities to a business license, they are by no means interchangeable. They serve different purposes and are issued by different government organizations. The Certificate of Authority enables a corporation or LLC to expand its operations into a new state, while a business license ensures compliance with local regulations within a specific jurisdiction. The Certificate of Authority is acquired through the Division of Corporations in your state. On the other hand, a business license is obtained through the Division of Revenue in your local county.

Why Do States Require a Certificate of Authority?

For the business owner, completing the process of foreign qualification and obtaining a Certificate of Authority allows an LLC or corporation to legally do business outside the state in which the company was incorporated.

For the state, foreign qualification is a way of generating tax revenue in exchange for the privilege of conducting business there.

Is LLC Foreign Qualification the Same as Corporation Foreign Qualification?

Just as fees and documentation vary from state to state, so too can specific requirements for LLCs and Corporations. In some states, the requirements for foreign qualification are the same for the different business entities, while in others, they are different. The difference could be as small as requiring certified copies of a document for one and not the other, or as large as different document requirements and a different application fee. See a comprehensive list of corporation and LLC foreign qualification differences from state to state below, under Foreign Qualification Requirements by State.

What If a Business in a Different State Has the Same Name as Your Business?

In order to complete the foreign qualification process in a new state, your corporation or LLC must operate under a name that is unique to that state.

For instance, if you form a Delaware LLC called John Doe Consulting LLC, you may want to foreign qualify in Maryland to do business there. If Maryland already has its own registered company called John Doe Consulting LLC, you will have to create a fictitious name (known as a DBA or "Doing Business As") for your foreign qualification application to be approved. This fictitious name can be anything you want as long as it is unique in the new state. In this case, JD Consulting LLC or John Doe Consulting Group LLC could suffice.

Foreign Qualification with Harvard Business Services, Inc.

At Harvard Business Services, Inc., we help businesses expand across state lines by handling the foreign qualification process from start to finish. Leave everything to us, and we’ll ensure that your company is properly registered and compliant in each new state. Our team takes care of filings, state requirements, and ongoing obligations so you can focus on operating and growing your business.

Below is the basic information Harvard Business Services, Inc. will ask for in order to assist in foreign qualifying your Delaware company. Please note that for certain states, we will require additional information as well:

• Company name
• Name of managing member or officer who will be signing the document
• Business address
• Nature of the business

We have been foreign qualifying corporations and LLCs in all 50 states for over two decades. If you would like your Delaware company to operate in another state, we'd be happy to assist you.

Please call (800-345-2677, Ext. 6900), email or live chat with us to get started on your Foreign Qualification.

This information is to be considered general information. Harvard Business Services, Inc. is not a law firm and cannot provide legal advice. For more information, please consult an attorney.